Trade Finance

Financing trade in Africa faces a significant “trade finance gap”, with institutions like the African Development Bank (AfDB) and the African Export-Import Bank (Afreximbank) actively working to bridge it through various programs and initiatives.

The Challenge: The Trade Finance Gap

High Demand, Low Supply

The demand for trade finance in Africa is substantial, but the availability of funding from international lenders often falls short—creating a significant gap.

Estimated Gap

The trade finance gap in Africa is estimated at around USD 81.8 billion annually.

Factors Contributing to the Gap

  • De-risking: Some international banks are reducing their involvement in African trade finance due to increased regulatory scrutiny and perceived higher risks.

  • Regulatory Issues: Stringent international standards such as Anti-Money Laundering (AML) and Know Your Customer (KYC) rules, along with rising compliance costs, make trade finance in Africa more complex and expensive.

  • Weak Credit Information Systems: The lack of robust credit information systems increases the perceived risk for lenders.

  • High Costs: Trade finance in Africa is expensive by international standards, particularly for small and medium-sized enterprises (SMEs).

Our Partnership

We have partnered with African Global Trade Finance (AGTF), an international non-bank financial institution headquartered in the United Kingdom, to provide short-term loans of up to $2 million for up to 180 days.

These loans are available to qualified importers and exporters of agricultural products, non-perishables, and other finished goods from Sub-Saharan Africa, in an effort to alleviate the financing challenges they face.

Types of Financing Available

The types of financing available depend on the applicant’s country in Sub-Saharan Africa. Not all applicants will qualify for every option. Available trade finance solutions include:

  • Pre-shipment Finance

  • Post-shipment Finance

  • Import Finance

  • Storage Finance

  • Receivables/Discounting Finance

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Project Finance

Project finance provides debt, and in some cases, equity financing for businesses in Sub-Saharan Africa, in the following sectors: renewable energy, hospitality,(hotel, resorts, restaurants, event centers), commercial and mixed use, and healthcare. Construction projects can be financed from ground up including the cost of land. Minimum debt financing is $250 million;a lesser amount may be available from other providers.
 

Global Grant Seekers

Sources of grants for African countries are provided by some foreign governments , private foundations and others. Beneficiaries of funds include corporations, small businesses, non-profit organizations, but rarely to individuals .Funds are channelled to different sectors such as NGO, education, research, agriculture, healthcare, energy, women empowerment, poverty alleviations and other causes.. Grant providers include United States government agencies such as  United States African Development Foundation (USADF), United Nations, Climate Investment Fund (CIF), Foundations and many more.
 
To qualify for a grant, you typically need to complete an application and  submit comprehensive business plan outlining a well-defined project that aligns with the grantmaker’s funding priorities, including a clear need statement, measurable goals,  detailed budget, project timeline,qualified staff information, and a demonstration of how your project will achieve impactful results within the grant guidelines: essentially providing the value and feasibility of your proposed initiative.
We require a nominal fee for this service. Please go to our Methods of Payment page to find out the details.
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FINANCIAL SOLUTIONS

The types of instruments offered by the providers are debt and equity. Grant is also offered but this is financial assistance and not a financial instrument.
 
Debt – Is money given to a business in the form of loan and is obligated to repay throughout the tenor of the loan as agreed upon. A loan can be short-term, for a period of up to 180 days, as in the case of this type of trade finance.
 
It can be categorized as a Senior debt, which is the debt that a company must repay first if the company is dissolved or it goes out of business, as a Junior debt or Subordinated  debt (non-convertible), which is a type of debt that is only paid out after other debts are settled when a company gets liquidated due to insolvency or as Mezzanine.
 
Mezzanine is a form of debt that is subordinated to senior debt, but senior to pure equity. It is a debt that can be converted into equity in case of borrower’s default. Due to the relatively high risk involved, lenders of Mezzanine debt receive higher returns than senior debt. 
 
Equity
Unlike debt, equity is a financial instrument created when an investor puts money in a company with the aim of becoming a partial owner and potentially benefiting from profit and asset appreciation. The proportion of ownership is determined by the number of shares an investor holds in the company. An equity investor may be a venture capitalist or a private equity.firm and may be classified as a majority stakeholder if they own  more than 50% of the company’s shares, giving them a signif  over strategic decisions and operations, while a minority stakeholder is any ownership below that  threshold.  Investors remain in a company for a specific period of time and then exit their portfolio.
 
Private equity investors typically exit their portfolio through methods like initial public offering (IPO) , Trade sales (selling to another company, or Secondary buyouts (selling to another private equity firm) aiming to realize returns and value creation. They can also exit through Management Buyouts (selling the portfolio company to an existing management team, often financed by debt or equity from other investors, Recapitalization ( occurs when the private equity restructures the portfolio company’s debt and equity mix, often returning capital to investors without retaining stake in the company), or through Liquidation. This happens when the portfolio company is not performing well and the private equity investor decides to sell off the company’s assets piecemeal, returning the proceeds to investors.
 
Grant
A Grant is a financial assistance where funds are provided for a specific purpose and there is no expectation of repayment.Unlike debt or equity, a grant is not considered a financial instrument but a financial assistance.Grants are provided by foundations, corporations and government agencies.It is very important for the grant seekers to understand the key features of a grant so that they will be familiar with what to expect from the grant providers and what a strong proposal should look like.
 
The following are the key features of a Grant:
 
Scope of Work:
Grants typically outline a specific project or activity that the funding is intended to support, ensuring the funds are used for the intended purpose.
 
Periods of Performance
Grants have a definite timeframe within which the project or activity must be completed, ensuring accountability and timely use of the fund.
 
Reporting Requirements
Grant recipients are usually required to submit regular reports, detailing progress, expenditure and outcomes, ensuring transparency and accountability
 
Focus on Specific Goals
Grants often target specific areas of need or research, aligning funding with strategic priorities and desired outcomes.
 
Competitive Nature
Many grants are awarded through a competitive process, requiring applicants to submit proposals that demonstrate the need for funding and the project’s potential for success.
 
Susceptibility Plan
Some grants require a plan for how the project or program will continue to operate after the grant period ends, ensuring long-term impact.
 
Evaluation Plan
A strong grant proposal includes a plan to assess the effectiveness of the project or program demonstrating how the grant funds have led to the desired outcomes.
 
Budget
A detailed budget outlining how the grant funds will be spent is a crucial part of a grant proposal, demonstrating responsible financial planning.
 
Organizational Background
The proposal should demonstrate the organization’s experience and capacity to successfully manage the grant and achieve goals.
 
Statement of Needs
The proposal should clearly articulate the problem or need that the project aims to address, establishing the importance of the grant.
 
Project Description
A clear and concise description of the proposed project, including its goal, objectives, and activities.